family zone cyber safety limited · 2020. 10. 5. · family zone cyber safety limited annual report...

FAMILY ZONE CYBER SAFETY LIMITED

ACN 167 509 177

ANNUAL REPORT

for the year ended 30 June 2020

Family Zone Cyber Safety Limited Annual Report 30 June 2020

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CONTENTS

PAGE

CORPORATE INFORMATION .................................................................................................................................... 3

CHAIRMAN'S MESSAGE ............................................................................................................................................ 4

REVIEW OF OPERATIONS ........................................................................................................................................ 5

DIRECTORS‟ REPORT ............................................................................................................................................... 9

DIRECTORS‟ REPORT REMUNERATION REPORT (AUDITED) ............................................................................ 18

AUDITOR‟S INDEPENDENCE DECLARATION ........................................................................................................ 33

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME ..................... 34

CONSOLIDATED STATEMENT OF FINANCIAL POSITION .................................................................................... 35

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY .................................................................................... 36

CONSOLIDATED STATEMENT OF CASH FLOWS ................................................................................................. 37

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS .............................................................................. 38

DIRECTORS‟ DECLARATION .................................................................................................................................. 83

INDEPENDENT AUDITOR‟S REPORT………………………………………………………………………………………84

ASX ADDITIONAL INFORMATION ........................................................................................................................... 92

CORPORATE GOVERNANCE .................................................................................................................................. 97


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CORPORATE INFORMATION Directors Tim Levy Managing Director Peter Pawlowitsch Non-Executive Chairman (appointed 24 September 2019) Crispin Swan Executive Director - Sales Phil Warren Non-Executive Director Matthew Stepka Non-Executive Director (appointed 1 May 2020) Company secretary Emma Wates

Registered and principal administrative office: 945 Wellington Street WEST PERTH WA 6005 Telephone: +61 8 9322 7600

Principal place of business Level 17 Citibank House

37 St George Terrace PERTH WA 6000

Telephone: 1300 398 326 Share register Automic Registry Services

Level 5 126 Phillip Street Sydney NSW 2000 Solicitors GTP Legal 68 Aberdeen Street NORTHBRIDGE WA 6003 Telephone: +61 8 6555 1866 Bankers: Westpac Banking Corporation Level 14, 109 St Georges Terrace Perth WA 6000 Auditors: Pitcher Partners BA&A Pty Ltd Level 11, 12-14 The Esplanade PERTH WA 6000 Telephone: +61 8 9322 2022 Securities Exchange Listing Family Zone Cyber Safety Limited is listed on the Australian Securities Exchange (ASX Code: FZO)


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CHAIRMAN’S MESSAGE

Dear Fellow Shareholders,

I have really enjoyed my first year as Chairman of Family Zone Cyber Safety Limited (“Family Zone” or the “Company”, ASX: FZO) and its controlled entities (the “Group”) and helping the team deliver on our mission of supporting and protecting every child's digital journey and in the past 12 months we have taken significant steps forward in this aim.

The Family Zone platform offers a world first, singular approach to enable schools, parents and cyber safety experts to collaborate to keep children safe anywhere, at any time, on any device and any network. We are building a business that incorporates school administration, teachers, all kinds of devices and the community surrounding children, empowering parents with tools and content that support learning. While the COVID-19 pandemic has affected businesses everywhere during this period, it has highlighted the value of our products and the need of our tools to assist children with their digital experiences, which have only increased with homeschooling becoming a tool being used to combat the spread of COVID-19. We entered the year with 927 schools and 482,000 students on the platform. At year end, the Company‟s educational base had grown to 2,456 schools (+165 percent) and 1.31 million students (+172 percent). Building on this, the strong sales trend has continued into FY21, with the Company achieving a 33 percent increase in the number of contracted students within just the first eight weeks of FY21. Our growth has been bolstered by our aggressive push into the US market during the past 12 months. The US market offers a large-scale growth opportunity with 135,000 schools and 57 million students. At the start of FY20, the US made up about 48 percent of our school clients, and at year end, it made up more than 75 percent of our numbers. However, this is only the tip of the iceberg as we have penetrated only about 2 percent of the US school districts, demonstrating how much further we can grow our business by focusing on this market. Family Zone‟s prioritisation of its education channel in FY20 was the bedrock of the Company‟s success. The annual value of contracts signed grew swiftly through the year and the Company achieved 500 percent YoY growth on this metric in the June quarter alone. The Company expects to supplement this growth by launching consumer offerings into the US within the next six months. I would like to thank our Shareholders, both new and existing, for their support of our capital raisings during the year and for continuing to support Family Zone as it pursues its strategy for growth. I also thank our Board, who have supported me since coming into the role of Chairman in September 2019, and our Management team, including Managing Director Tim Levy, for their stellar efforts. Our staff have operated through a challenging period recently and I commend them for their dedication. Family Zone has a clear goal of what it wants to achieve, and I believe we are on the right track to that success. I look forward to keeping you all updated of our progress in the year ahead.

Peter Pawlowitsch Chairman


REVIEW OF OPERATIONS

5

Operational results

Key operational highlights and achievements in the 12-month period ending 30 June 2020 included:

Successful expansion in USA education drove a 165% YoY growth in schools and 173% growth in

Students using Family Zone‟s service.

Established the Company as a significant player in US education, deploying into approximately 2% of USA

school districts and over 30 states in America.

Significantly expanded our product offerings including launching market leading Classwize, SafeInspect,

SafeGuard and SafeDNet.

Continued to innovate in consumer offerings, including a successful launch of freemium, Family Zone

Insights.

Raised a total of $11.17 million (net of issue costs) in two placements to support continued investment in

the platform and business growth into FY21.

Recurring revenue growth

Growth in the annual recurring revenue is a key strategic focus of the Group. Given the Group‟s operating costs are relatively fixed, strong revenue growth will have a significant impact on the Company‟s operating result. The majority of the Group‟s revenues are generated from its education business with schools contracted generally for between 1 and 3 years. Contracted revenues are also generated from the Group‟s consumer and wholesale customers.

The Group ended the financial year with annual recurring revenues (Non-IFRS measure) of circa $8.04 million representing a 105% increase from the prior year. Annual recurring revenue represents the estimated next 12 month gross revenue of the Group based on the number of contracted customers year end and the average revenue generated per customer.

US growth

The 2019/2020 financial year represented the second year of the Company‟s entry into US education. The Company‟s previous investments in product and business development saw strong traction with more than 830,000 US students added to the Family Zone platform. This represented a near trippling of the Company‟s student user-base.

By the June 2020 quarter, which cyclically represents the largest US sales period, the US was the biggest contributor to the Company‟s top line growth. Family Zone ended FY20 with 2,010 US schools on the platform representing more than 75% of customers in its Education division. Family Zone has achieved market penetration of more than 2% of all US school districts in an incredibly short period of time, which demonstrates the opportunity for future growth.



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Record growth in schools and student licences Family Zone continued to add student licences at a record pace throughout the year, with each quarter surpassing the previous one and Family Zone finishing the year with a new record of 214,000 new student licences in the June quarter, 1.3 million students on the platform and more than 900,000 licenced students. It ended the year with 2,456 schools on the platform and 1,815 contracted schools. The June quarter record was broken in the first month of FY21, with July 2020 seeing Family Zone add 219,000 contracted student licenses to the platform as budgets were set in the US school system, which boosted sales activity. This is expected to provide the company with strong momentum to build upon in FY21. Continued innovation in consumer Whilst focused on expansion in education during the year, the Company continued to grow it‟s direct consumer business and innovate. Most importantly, the Company launched its freemium consumer offering, Family Zone Insights. Its launch was a significant milestone, providing Family Zone with direct access to large audiences and the ability to obtain insights into children‟s online activities for the purpose of promoting cyber safety and Family Zone‟s premium parental control offering. Insights is a „freemium‟ product which provides parents with:

Detailed reports and drill downs into their children‟s internet usage;

The ability to locate their children‟s devices;

The ability to trace their children‟s location history;

Alerts for risky activity such as the use of inappropriate apps;

Analysis of their children‟s internet activity;

Timely and relevant advice from cyber safety experts; and

Seamless upgrade opportunities to seamlessly subscribe to premium parental controls allowing parents to

block inappropriate content, manage screen-time, limit social media, Apps and more.

The purpose of Insights is to drive scale and by design enforces no restrictions onto the child. Insights was made available to Family Zone‟s school clients and wholesale partners, offering them valuable (brand building) tools for their community/customers and offering Family Zone upgrade sales opportunities.



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Insights was soft launched in Australia and in November 2019, the Company launched Telkomsel Safe, a re-branded Family Zone Insights offering. By the end of 1H20, 7,200 accounts had been activated across Family Zone‟s channels with the bulk via Telkomsel. Initial engagement indicators were exceptional, with greater than 60% activation of downloaded Apps and negligible churn. In February 2020, Telkomsel started providing some initial marketing of the product and this resulted in a considerable increase in downloads. Wholesale channels During the March quarter, as COVID-19 started to impact the business, the Company initiated a strategic review of its Asian telco channel, in light of:

The economic impact of COVID-19 on these jurisdictions;

The costs to service this channel;

Existing wholesale revenue; and

Other opportunities to deploy capital.

As a result, the Company decided to suspend wholesale sales for 2020 and reconsider the wholesale channel in CY21 while it capitalises on opportunities in the Education sector, particularly in the US, as it believed the Education and School Communities segments to be a more productive and appropriate focus for short-term investment.

Financial results The Group achieved revenue of $5.09 million for the year ended 30 June 2020, a 21.6% increase on the previous corresponding period. Revenue from sales in the US increased by about 70% to $1.35 million over the previous year. The Group reported a net loss of $17.6 million, which was a 22.3% increase on the FY19 result. During the year, the Group continued to invest in the development of new products as well as undertaking several major product enhancements. This included the launch of its teacher tool Classwize in February 2020, which proved to be a valuable tool for schools particularly following the move to remote learning in the wake of the COVID-19 pandemic. The Company also invested in expanding the scale of its platform to support the increasing number of users and scale of opportunities presented in the US education market. Family Zone‟s continued investment in R&D activities resulted in the Group receiving government R&D grant income of approximately $2.39 million, resulting in operating revenue and other income for the year of approximately $8.47 million. Employee benefits and director remuneration was a key expenditure item for the financial year, being approximately $10.05 million. During the year, the Group invested in the establishment of an experienced sales and delivery team to drive growth in the US education market. It now has 20 employees in its US team. Non-cash share-based payments to employees and consultants during the period were approximately $2.91 million. Other significant non-cash expenditure was the depreciation and amortisation charge for the financial year of approximately $4.16 million.



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Corporate Capital Raising In October 2019, the Company completed a placement of 33.9 million new shares at $0.14 per share to raise $4.75 million (before costs). The Company was supported in the placement by several existing institutional investors and welcomed a range of new institutional and sophisticated investors from Australia and Asia. Blue Ocean Equities Pty Ltd acted as Lead Manager to the Placement. As announced in April 2020 and completed in May 2020, the Company completed a second capital raising for $10 million (before costs) through a Placement of 84,333,335 new shares to a range of institutional and private investors based in Australia and the US. The Placement price was set at $0.12, representing a 7.7% discount to the closing price on 23 April 2020 of $0.13 and a 16.6% discount to the 15-day VWAP of $0.14 prior to the Placement. The Placement shares were issued in two tranches, with the second tranche being subject to shareholder approval which was granted on 30 June 2020 and shares issued in July 2020. Bell Potter Securities Limited acted as Lead Manager to the Placement. Net proceeds from the capital raisings have and are being used primarily to accelerate growth and build on the rapid progress being made in USA education. Board Changes In September, experienced ASX executive Peter Pawlowitsch became Family Zone‟s Non-Executive Chairman. He is non-executive chairman of Novatti Group Ltd (ASX: NOV) and a non-executive director of Dubber Corporation Ltd (ASX: DUB), VRX Silica Ltd (ASX: VRX) and Knosys Ltd (ASX: KNO). John Sims, who previously held the Chairman role, and non-executive Director Sir Peter Westmacott resigned during the period. In the June quarter, the Company appointed former Google executive Matthew Stepka as a Non-Executive Director. Mr Stepka is Managing Partner of Machina Ventures, an investment firm focused on early stage, artificial intelligence and data science enabled companies. He is also a Lecturer at UC Berkeley, Haas School of Business and is an inaugural Disruptor Foundation Fellow and is a member of the California State Bar. Cash balance The Company‟s cash balance as at 30 June 2020 was $5.8 million, with an additional $3.7 million received on 7 July 2020 following the completion of the second tranche of its Placement. With these funds and growing recurring revenues the Company is well funded and positioned to invest in growth.


DIRECTORS’ REPORT

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Your Directors have pleasure in submitting their report together with the financial statements of Family Zone Cyber Safety Limited („Company‟) and its wholly owned subsidiaries (the „Group‟ or „Family Zone‟) for the financial year ended 30 June 2020. In order to comply with the provisions of the Corporations Act 2001, the Directors‟ Report as follows: DIRECTORS

The Directors in office at any time during the financial year and until the date of this report are as follows:

Mr Tim Levy Managing Director

Mr Peter Pawlowitsch Non-Executive Independent Chairman Appointed 24 September 2019

Mr John Sims Non-Executive Independent Chairman Resigned 24 September 2019

Mr Crispin Swan Executive Director – Sales

Mr Phil Warren Non-Executive Independent Director

Mr Matthew Stepka Non-Executive Independent Director Appointed 1 May 2020

Sir Peter Westmacott Non-Executive Independent Director Resigned 24 September 2019

The Directors have been in office since the start of the year to the date of this report unless otherwise stated. COMPANY SECRETARY The following person held the position of Company Secretary at the end of the financial year: Emma Wates

Emma is a Corporate Advisor and acted as Company Secretary for a number of ASX listed companies. Emma is a Chartered Accountant and a Senior Associate of FINSIA.

PRINCIPAL ACTIVITIES Family Zone is a technology group focussed on cyber safety. Meeting a growing demand to keep kids safe online and manage digital lifestyles, Family Zone has developed a unique ecosystem-based approach to cyber safety. The Family Zone ecosystem is a platform from which cyber safety settings, advice, and support can be delivered across any network and any device – offering a universal approach to cyber safety at home, at school and anywhere in between. The innovation of the Family Zone ecosystem is that it not only supports the needs of schools and parents but also that it also permits telecommunication service providers and device manufacturers to embed world‟s-best practice cyber safety into their offerings. The principal activities of the Group during the period have been continued sales and distribution, marketing and customer support of its suite of cyber safety products and services. There have been no other significant changes in the nature of these activities during the financial year. RESULTS The Group reported total revenue, other income and revaluation gains for the year ended 30 June 2020 of $8,465,865 (2019: $9,199,917) with revenue from operations being $5,090,173 (2019: $4,184,323). The net loss attributable to members of the Group for the year ended 30 June 2020 amounted to $17,617,120 (2019: loss $14,401,137).


DIRECTORS’ REPORT

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REVIEW OF OPERATIONS The operations of the Group during the financial year have focussed on the sales and marketing of its suite of cyber safety products through its key distribution channels as well as the provision of ongoing customer support services and continual improvement and upgrade of its services. A review of the Group‟s operations over the past financial year is outlined on pages 5 to 8 of the Annual Report. SIGNIFICANT CHANGES IN STATE OF AFFAIRS

There have been no significant changes in the state of affairs of the Group that occurred during the financial year not otherwise disclosed in this report or the financial statements. LIKELY DEVELOPMENTS

Other than as disclosed elsewhere in this report, there are no likely developments in the operations of the Group that were not finalised at the date of this report. ENVIRONMENTAL REGULATION

The Group is not subject to any significant environmental Commonwealth or State regulations or laws. DIVIDENDS There were no dividends paid or declared or recommended since the start of the financial year. EVENTS AFTER BALANCE DATE On 1 July 2020, the Company acquired 100% of the issued fully paid capital of a privately owned technology company operating within the cyber security sphere, for cash consideration of $100. At the date of this report, the initial business combination accounting is incomplete and as such no disclosures have been made in relation to the acquisition accounting for this transaction. Further disclosure will be provided in due course as management continue to work through this process. On 1 July 2020, a new lease agreement was entered into by the Company for premises in Australia. The lease is for a term of 2 years, commencing from 1 July 2020. On 7 July 2020, the Company completed the issue of the second tranche of 30,833,333 Placement Shares at $0.12 per Share raising $3.7 million (before costs) including an investment of $500,000 by the Company‟s Chairman, Peter Pawlowitsch. The Company also issued 2,000,000 Broker Options ($0.18, 7 July 2023), 5,500,000 Performance Rights to Matthew Stepka and 1,000,000 Director Options ($0.21, 7 July 2023) to Phil Warren. These options were approved at the Shareholder meeting on 30 June 2020, and therefore accounted for at 30 June 2020. On 13 July 2020 the Company announced the issue of the 4,000,000 Advisor Options, comprising 2,000,000 Tranche 1 Advisor Options ($0.18, 13 July 2023) and 2,000,000 Tranche 2 Advisor Options ($0.24, 13 July 2023) and 4,500,000 Performance Rights under the Company‟s Performance Rights Plan. These options were approved at the Shareholder meeting on 30 June 2020, and therefore accounted for at 30 June 2020. On 15 July 2020 the Company announced it had passed through a significant operational milestone with over 1 million contracted student licenses with a total of approximately 1.4 million students and 2,600 schools on the Family Zone Platform. On 26 August 2020, the Company announced that in the 8 weeks following the end of the financial year the Company had signed contracts in US education covering greater than 300,000 student licenses with 312,500


DIRECTORS’ REPORT

11

student licences added across the business in this period representing a 33% increase in the size of Family Zone‟s contracted education base. On 28 August 2020, the Company announced the issue of 500,000 Broker Options ($0.18, 13 July 2023). Since the end of the financial year a total of 4,798,789 Shares have been issued following the exercise of 4,798,789 Options with a total of $998,923 funds received from the exercise of these Options. In addition 459,842 Performance Rights have been exercises for nil consideration. Apart from the events discussed above, no other matters or circumstances have arisen since the end of the period which significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial years. INFORMATION ON DIRECTORS

DIRECTORS

Mr Tim Levy

B. Com, CA

Experience and expertise

Mr Levy is a successful telecommunications and technology entrepreneur. He is the founder of Vodafone‟s largest Australian retail partner Mo‟s Mobiles and was the former CEO/COO of listed Optus reseller B Digital Limited. Prior to working in commerce Mr. Levy was a management consultant at Andersen‟s working in technology and change projects across Australia, South Africa, Zambia, Jordan and Saudi Arabia.

Mr. Levy is a graduate of the University of Western Australia and was a practising Chartered Accountant prior to his move into commerce.

Other current directorships of ASX listed companies

Nil

Other directorships held in ASX listed companies in the last three years

Nil

Mr Peter Pawlowitsch

B. Comm, CPA MBA, FGIA

(Appointed 24 September 2019)


Mr Pawlowitsch is an experienced ASX company director. Mr Pawlowitsch specialises in technology businesses and the transition from startup to sustainability.

Mr Pawlowitsch is also a Fellow of the Governance Institute of Australia and holds a Master of Business Administration from Curtin University. These qualifications have underpinned more than 15 years‟ experience in the accounting profession and more recently in business management and the evaluation of businesses and projects.


Dubber Corporation Limited (September 2011 – present)

VRX Silica Limited (February 2010 – present)

Knosys Limited (March 2015 – present)

Novatti Group Limited (June 2015 – present)


Rewardle Holdings Limited (May 2017 – January 2019)

Mr John Sims

B. Acc (Glasgow)

(Resigned 24 September 2019)


Mr. Sims is a successful technology and telecommunications executive with over 35 years‟ experience. Based in San Francisco his former roles include:

● President, Global Sales, BlackBerry Limited

● Global Head of Telecom & President, SAP Mobile Services, SAP AG


DIRECTORS’ REPORT

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● Board Member, Mobixell Networks

● CEO, 724 Solutions Inc

● Founder and CEO, TANTAU Software Inc

● COO, SCC Communications (now Intrado, part of West Corp) and

● Vice President, Telecommunications, Tandem Computers


Nil


Nil

Mr Crispin Swan

B. Arts (Hons) (UK/Germany)

European Business Programme


Mr Swan is an experienced sales executive and general manager working across a range of global enterprises. His expertise is in international business development, executive and IT & T sales. Mr Swan‟s former roles have included:

● Vice President Sales Asia Pacific, Mavenir Systems

● Regional Sales Director and General Manager, Airwide Solutions

● Network Infrastructure Solutions IS Manager for Australia & Papua New Guinea

● Sales Manager, Sema

● Account Manager, Cisco Systems

● Account Manager, Alcatel-Lucent

● Sales Executive, Cable & Wireless Communications


Nil


Nil

Mr Phil Warren B. Com, CA


Mr Warren is a Chartered Accountant and managing director of West Perth based corporate advisory firm Grange Consulting. Mr. Warren has over 20 years of experience in finance and corporate roles in Australia and Europe. He has specialised in company valuations, mergers and acquisitions, capital raisings, debt financing, financial management, corporate governance and company secretarial services for a number of public and private companies.

Mr Warren has established a number of ASX listed companies and continues to act as corporate advisor to some of these companies. Mr. Warren is a non-executive director of Cassini Resources Limited and Rent.com.au Limited and also sits on a number of unlisted company boards in his capacity as finance and governance director.


Cassini Resources Limited (March 2011- present)

Rent.com.au Limited (September 2014 – present)

Jupiter Energy Limited (April 2018 – present)

Other directorships held in ASX listed companies in the last three years – Nil

Sir Peter Westmacott

(Resigned 24 September 2019)


Sir Peter is a distinguished senior British diplomat, who has been British Ambassador to Turkey, France and the United States of America. Sir Peter has been honoured with numerous awards and appointments in the UK and France. He was appointed Companion of the Order of St Michael and St George in 2000, promoted to Knight


DIRECTORS’ REPORT

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Commander (KCMG) in 2003 and Knight Grand Cross (GCMG) in 2016. He was also made a Lieutenant of the Victorian Order by HM The Queen in 1993.


None

Other directorships held in ASX listed company in the last three years

None

Mr Matthew Stepka

(Appointed 1 May 2020)


Mr Stepka is Managing Partner of Machina Ventures, an investment firm focused on early stage, artificial intelligence and data science enabled companies. He is also a Lecturer at UC Berkeley, Haas School of Business. Previously, Mr. Stepka was Vice President, Business Operations and Strategy at Google, where he led and incubated strategic initiatives including expanding internet access, deploying renewable energy, strengthening freedom of expression and democracy, innovating in robotics, establishing novel pricing strategies and extending Google‟s footprint in emerging markets, especially Africa. Prior to joining Google, Mr. Stepka held positions including Vice President at drugstore.com, Chief Operating Officer at WorldRes (a leading online hotel reservation network) and Management Consultant with McKinsey & Company. Mr. Stepka holds a Juris Doctorate from UCLA School of Law, and is a member of the California State Bar. In addition, he holds Bachelor of Science degrees in Computer Engineering and Management from Case Western Reserve University.


None

Other directorships held in ASX listed company in the last three years

None

MEETINGS OF DIRECTORS The number of Directors‟ meetings held, and the number of meetings attended by each of the Directors, for the year ended 30 June 2020:

Director Number of Board meetings eligible

to attend

Number of Board meetings

attended

Mr Tim Levy 4 4

Mr Peter Pawlowitsch 3 3

Mr John Sims 1 1

Mr Crispin Swan 4 4

Mr Phil Warren 4 4

Mr Matthew Stepka 1 1

Sir Peter Westmacott 1 1

http://drugstore.com/


DIRECTORS’ REPORT

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The number of audit committee meetings held, and the number of meetings attended by each of the Directors, for the year ended 30 June 2020.

Director Number of audit committee

meetings eligible to attend

Number of audit committee

meetings attended

John Sims 1 1

Phil Warren (Chairman) 2 2

Mr Peter Pawlowitsch (Chairman) 1 1

During the year ended 30 June 2020 the Remuneration Committee worked with management to develop the Group‟s remuneration strategy which formed the basis of the Staff Incentive Plan introduced during the year in which the Executive Directors participated. The Remuneration Committee reviewed and approved the revised remuneration packages of the Executive Directors by circular resolution during the year. The Board as a whole considered the appointment of new Directors during the financial year having regard to the Company‟s stage of operations and the desired skills and experience required by the Company as well as the proposed candidates‟ diversity of background. DIRECTORS’ INTERESTS IN THE SHARES AND OPTIONS OF THE COMPANY As at the date of this report, the interests of the Directors in fully paid ordinary shares (Shares), unlisted options, and performance rights of the Group were:

Director Shares Unlisted Options Performance Rights1

Tim Levy 10,939,730 181,351 4,599,207

John Sims 322,222 - -

Crispin Swan 4,196,575 197,838 2,910,959

Phil Warren 293,088 1,000,000 -

Sir Peter Westmacott 283,052 75,000 -

Peter Pawlowitsch 8,298,085 3,000,000

Matthew Stepka - - 5,500,000

1. Refer to the table below for breakdown of various Performance Rights held by Directors


DIRECTORS’ REPORT

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As at the date of this report, the interests of the Directors the various classes of performance rights of the Group were:

Performance Rights (“PR”)

Director Class D

PRs

Class G

PRs

Remuneration

PRs

Employee

PRs

Executive

PRs

SP PRs Total

Tim Levy - 977,778 1,071,429 300,000 1,250,000 1,000,000 4,599,207

John Sims - - - - - - -

Crispin Swan 333,340 213,333 814,286 300,000 1,250,000 - 2,910,959

Phil Warren - - - - - - -

Sir Peter

Westmacott - - - - - - -

Peter

Pawlowitsch - - - - - - -

Matthew Stepka - - 500,000 - - 5,000,000 5,500,0000

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS The Company indemnifies the directors and officers of the Company for costs incurred, in their capacity as a

director or officer, for which they may be held personally liable, except where there is a lack of good faith. During

the financial year, the Company paid a market rate premium in respect of a contract to insure the directors and

executives of the Company against a liability to the extent permitted by the Corporations Act 2001. For

confidentiality purposes the insurer has recommended not to disclose of the nature of the liability and the amount of

the premium.

PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied for leave of Court under Section 237 of the Corporations Act 2001 to bring proceedings on

behalf of the Group.

AUDITOR’S INDEPENDENCE DECLARATION The auditor‟s independence declaration as required under section 307C of the Corporations Act 2001 for the year

ended 30 June 2020 is provided in this report.

NON-AUDIT SERVICES Pitcher Partners BA&A Pty Ltd consented to and was appointed as the Group‟s auditors on 20 May 2016. The Group may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor‟s expertise and experience with the Group are important. Non-audit services were provided by the Group‟s current auditors, Pitcher Partners BA&A Pty Ltd as detailed below. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001.


DIRECTORS’ REPORT

16

30 June 2020

$

30 June 2019

$

Amounts paid/ payable to Pitcher Partners BA&A Pty Ltd or related entities for non-audit services

Pitcher Partner BA&A Pty Ltd – Other assurance engagements - 3,000

Pitcher Partners (WA) Pty Ltd - Taxation 11,700 10,600

Total auditor’s remuneration for non-audit services 11,700 13,600

UNISSUED SHARES UNDER OPTION At the date of this report unissued ordinary shares, or interests of the Company under option, are:

Options Granted Exercise Price Expiry Date Number

Broker Options 04/12/2017 $0.50 04/12/2020 850,000

Broker Options 04/12/2017 $0.60 04/12/2020 850,000

Broker Options 09/04/2018 $0.75 09/04/2021 516,765

Broker Options 09/04/2018 $0.90 09/04/2021 516,765

Advisor Options 11/03/2019 $0.25 11/03/2022 250,000

Employee Options 18/03/2019 $0.18 18/03/2022 1,629,892

Selling/Advisor Options 08/11/2019 $0.21 08/11/2022 2,595,000

Director Options 08/11/2019 $0.21 08/11/2022 3,000,000

Employee Options 29/05/2020 $0.21 29/05/2023 500,000

Director Options 30/06/2020 $0.21 07/07/2023 1,000,000

Broker Options 30/06/2020 $0.18 07/07/2023 2,000,000

Advisor Options 30/06/2020 $0.18 13/07/2023 500,000

Advisor Options 30/06/2020 $0.24 13/07/2023 1,200,000

Advisor Options 28/08/2020 $0.18 13/07/2023 500,000

Performance Shares 29/11/2017 Nil 29/11/2022 3,000,000

Performance Rights 25/02/2019 to 13/07/2020

Nil 25/02/2022 to

13/07/2023

26,068,235

Total 44,976,657


DIRECTORS’ REPORT

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SHARES ISSUED DURING OR SINCE THE END OF THE YEAR AS A RESULT OF EXERCISE OF OPTIONS During the year, and as at the date of this report, details of ordinary shares issued by the Company are as a result of the exercise of Options and Performance Rights are:

Options Date Option Granted Exercise Price Number of Shares issued

Amount paid for Shares

Broker Options 21/05/2019 $0.235 898,692 $211,193

Employee Options 09/04/2018 $0.18 342,997 $61,739

Selling/Advisor 08/11/2019 $0.21 1,257,100 $263,991

Advisor Options 30/06/2020 $0.24 800,000 $192,000

Advisor Options 30/06/2020 $0.18 1,500,000 $270,000

Performance Rights 25/02/2019 and 02/03/2020

Nil 459,842 -

Total 5,258,631 $998,923

ROUNDING OF AMOUNTS The Company has applied the relief available to it in ASIC Legislative Instrument 2016/191, and accordingly certain amounts included in this report and in the financial report have been rounded off to the nearest $1 (where rounding is applicable), under the option available to the Company under ASIC Corporations.


DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED)

18

This report outlines the remuneration arrangements in place for Directors and key management personnel of the Group for the year ended 30 June 2020. The information contained in this report has been audited as required by section 308(3C) of the Corporations Act 2001. The information provided includes remuneration disclosures that are required under Accounting Standard AASB 124 “Related Party Disclosures”. These disclosures have been transferred from the Financial Report.

This remuneration report details the remuneration arrangements for key management personnel (“KMP”) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the Group, and includes the following specified executives in the Group: A. Details of Key Management Personnel

Name Position Period of Responsibility

Mr Tim Levy Managing Director Appointed 1 April 2014

Mr John Sims Non-Executive Chairman Appointed 13 May 2016 – Resigned 24 September 2019

Mr Peter Pawlowitsch Non-Executive Chairman Appointed 24 September 2019

Mr Crispin Swan Executive Director - Sales Appointed 3 September 2015

Mr Phil Warren Non-Executive Director Appointed 13 May 2016

Sir Peter Westmacott Non-Executive Director Appointed 8 October 2018 – Resigned 24 September 2019

Mr Matthew Stepka Non-Executive Director Appointed 1 May 2020

B. Remuneration Policies Remuneration levels for Directors, secretaries and senior executives of the Group (“the Directors and senior executives”) will be competitively set to attract and retain appropriately qualified and experienced Directors and senior executives. The Board may obtain independent advice on the appropriateness of remuneration packages given trends in comparative companies both locally and internationally and the objectives of the Group‟s remuneration strategy. No such advice was obtained during the current year. The remuneration structures explained below are designed to attract suitably qualified candidates, reward the achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. The remuneration structures take into account: ● the capability and experience of the Directors and senior executives; ● the Directors‟ and senior executives‟ ability to control the relevant performance; ● the Group‟s performance; and ● the amount of incentives within each Directors and senior executives remuneration.

Remuneration packages include a mix of fixed remuneration and variable remuneration and short and long-term performance-based incentives. Fixed remuneration consists of base remuneration, employer contributions to superannuation funds as well as securities issued under the Staff Incentive Plan as part of the Group‟s cashflow conservation strategy. These securities are considered fixed remuneration when they are not at risk as a result of performance. Remuneration levels will be, if necessary, reviewed annually by the Board through a process that considers the


DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED)

19

overall performance of the Group. If required, external consultants provide analysis and advice to ensure the Directors‟ and senior executives‟ remuneration is competitive in the market place. No external remuneration consultants were engaged during the year. The remuneration policy will be tailored to increase goal congruence between shareholders and Directors and key management personnel. This will be facilitated through the issue of options and performance shares to key management personnel to encourage the alignment of personal and shareholder interests. The Group believes this policy will be effective in increasing shareholder wealth. During the year, the Group implemented a Staff Incentive Plan with the following core objectives: ● Conserving cash by converting cash based remuneration to security based remuneration; ● Attract and retain staff; ● Align executives incentives to the Company‟s annual recurring revenue targets; and ● Align remuneration with shareholders through employees having an equity interest in the Company. The Staff Incentive Plan introduced comprised: Remuneration in Securities The Executive Directors and a number of senior staff agreed to convert part of their cash based remuneration into security based remuneration. Shares and Remuneration Performance Rights were issued in lieu of salaries with the objective of conserving cash and aligning the employee remuneration with shareholders through employees having an equity interest in the Company. Employee Incentive Scheme The Company also introduced an Employee Incentive Scheme across all staff, including Executive Directors, with the objective of attracting and retaining staff within the business through the issue of Employee Performance Rights. The Employee Performance Rights were issued under the Company‟s Performance Rights Plan in three equal tranches which vest subject to continued employment over a 3 year period. Executive Incentive Scheme The Company also introduced an Executive Incentive Scheme for senior executives, including Executive Directors, focusing on growing annual recurring revenue (ARR). The continued growth of the Company‟s ARR has been identified as a key strategic objective of the Company and it is targeting to achieve $16 million ARR by 30 June 2021. The Executive Performance Rights issued under the Company‟s Performance Rights Plan include vesting conditions which focus on the achievement of $16 million of ARR by 30 June 2021 (Target ARR). No Executive Performance Rights will vest if the Company does not achieve at least 90% of this target and all the Executive Performance Rights will vest if the Company‟s ARR is $20 million by 30 June 2020 exceeding its Target ARR by 25%. Executive Service Agreements The Group has services agreements with each of its executive Directors and key management personnel. The Group has also entered into Non-Executive Director appointment letters outlining the policies and terms of this appointment including compensation.


DIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT CONTINUED (AUDITED)

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The principal terms of the executive service agreements existing at reporting date are set out below: Mr Tim Levy – Managing Director The Company has an executive services agreement with Mr Tim Levy for his role as Managing Director of the Group which commenced 29 August 2016 (the date the Company was admitted to the Official List of ASX) and continues until terminated under the termination provisions outlined below. The principal terms of this agreement (as varied) are as follows: a) a base salary of $300,000 per annum (2019: $220,000) plus statutory superannuation, effective 15 January

2020. b) the agreement may be terminated;

(i) by either party without cause with 12 months written notice or if the Company elects to with payment in lieu of notice;

(ii) by the Company with one month‟s notice, or immediately with payment in lieu of notice if Mr Levy is unable to perform his duties under the agreement for three consecutive months or a period aggregating to three months in a 12 month period;

(iii) by either party with 12 months written notice if the role of Managing Director becomes redundant. If the Company terminates the employment of Mr Levy within 12 months of a Change of Control, it will be deemed to be a termination by reason of redundancy. If the Company terminates for reason of redundancy it shall be obliged to pay Mr Levy for any notice period worked. In addition, it will be required to pay any redundancy amount payable under applicable laws, an amount equal to 12 months base salary (less tax) and any accumulated entitlements;

(iv) by the Company, at any time with written notice and without payment (other than entitlements accrued to the date of termination) as a result of any occurrence which gives the Company a right of summary dismissal at common law; and

(v) by Mr Levy immediately, by giving notice, if the Company is in breach of a material term of this agreement.

During the year, Mr Levy agreed to forgo 50% of his cash salary for 12 months and opted to receive 1,071,429 Remuneration Performance Rights for the service provided. He was also issued 300,000 Employee Performance Rights, 1,250,000 Executive Performance Rights and 1,000,000 SP Performance as part of the Company‟s Staff Incentive Plan. Refer to Section E for details on these performance rights including the vesting conditions. Mr Crispin Swan– Executive Director – Sales The Company has an executive services agreement with Mr Crispin Swan for his role as Executive Director - Sales of the Company which commenced on 29 August 2016 (the date the Company was admitted to the Official List of ASX) and continues until terminated under the termination provisions outlined below. The principal terms of the agreement (as varied) are as follows: a) a base salary of $300,000 per annum (2019: $240,000) plus statutory superannuation, effective 15 January

2020. b) the agreement may be terminated;

(i) by either party without cause with 12 months written notice or if the Company elects to with payment in lieu of notice;

(ii) by the Company with one month‟s notice, or immediately with payment in lieu of notice if Mr Swan is unable to perform his duties under the agreement for three consecutive months or a period aggregating to three months in a 12 month period;

(iii) by either party with 12 months written notice if Mr Swan‟s role becomes redundant. If the Company terminates the employment of Mr Swan within 12 months of a Change of Control, it will be deemed to be a termination by reason of redundancy. If the Company terminates for reason of redundancy it



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shall be obliged to pay Mr Swan for any notice period worked. In addition, it will be required to pay any redundancy amount payable under applicable laws, an amount equal to 12 months base salary and any accumulated entitlements;

(iv) by the Company, at any time with written notice and without payment (other than entitlements accrued to the date of termination) as a result of any occurrence which gives the Company a right of summary dismissal at common law; and

(v) by Mr Swan immediately, by giving notice, if the Company is in breach of a material term of this agreement.

During the year, Mr Swan agreed to forgo 38% of his base salary for 12 months and opted to instead receive 814,286 remuneration Performance Rights for the service provided. He was also issued 300,000 Employee Performance Rights and 1,250,000 Executive Performance Rights as part of the Company‟s Staff Incentive Plan. Refer to Section E for details on these performance rights including the vesting conditions; Non-Executive Directors and Chairman Fees Non-executive Director fees are set based on fees paid to other Non-Executive Directors of comparable companies. The aggregate remuneration for Non-Executive Directors has been set by the Board at an amount not to exceed $500,000 per annum. Non-Executive Chairman, Mr Peter Palowitsch receives a base cash fee of $80,000 per annum (plus statutory superannuation) payable from his appointment date. If the market capitalisation of the Company reaches $150 million for 20 consecutive days Mr Pawlowitsch‟s remuneration will increase to $100,000 per annum (plus statutory superannuation). Non-Executive Directors Mr Phil Warren and Mr Matthew Stepka are entitled to base cash fee of $40,000 pa and $60,000 pa respectively. During the financial year Mr Pawlowtisch and Mr Stepka agreed to receive equity based remuneration in lieu of their base cash fees for a 12 month period. The Company does not have a Director‟s Retirement Scheme in place at present.



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C. Remuneration of Key Management Personnel Details of the remuneration of the Directors and the key management personnel (KMP) (as defined in AASB 124 Related Party Disclosures) of the Group for the year ended 30 June 2020 are set out in the following table.

Directors and KMP Short -term Post employment Long term Share-based

payments

TOTAL

Performance based %

of remuneration

30 June 2020 Salary

fees

$

Cash

bonus

$

Other

$

Super-

annuation

$

Retire-

ment

benefits

$

Termination

benefits

$

Incentive

Plans

$

Long

Service

Leave

$

Shares/

Options/

Performance

Rights (PR)

$

$

Fixed

based

%

Performance

based %

Mr Tim Levy1 62,500 - - 18,129 - - - - 195,101 275,730 86% 14%

Mr Crispin Swan2 189,500 - - 20,662 - - - - 85,671 295,833 91% 9%

Mr John Sims3 4,166 - - - - - - - - 4,166 100% 0%

Mr Peter Pawlowitsch3 21,449 - - 2,037 - - - - 208,523 232,009 45% 55%

Mr Phil Warren 16,666 - - 3,800 - - - - 57,705 78,171 26% 74%

Sir Peter Westmacott4 - - - - - - - - - - 0% 0%

Matthew Stepka5 - - - - - - - - 361,863 361,863 3% 97%

Total Directors 294,281 - - 44,628 - - - - 908,863 1,247,772 52% 48%



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Details of the remuneration of the Directors and the key management personnel (as defined in AASB 124 Related Party Disclosures) of the Group for the year ended 30 June 2019 are set out in the following table.

Directors and

KMP

Short -term Post employment Long term Share-based

payments

TOTAL

Performance based %

of remuneration

30 June 2019 Salary

fees

$

Cash

bonus

$

Non-

monetary

$

Super-

annuation

$

Retire-

ment

benefits

$

Termination

benefits

$

Incentive

Plans

$

Long

Service

Leave

$

Shares/

Options/

Performance

Rights $

$

Fixed

based

%

Performance

based %

Mr Tim Levy 128,333 - - 20,900 - - - - 151,243 300,476 86% 14%

Mr Crispin Swan 220,000 - 5,600 22,800 - - - - 200,283 448,683 90% 10%

Mr John Sims 25,000 - - - - - - - 50,000 75,000 100% 0%

Mr Phil Warren 23,333 - - 3,800 - - - - 40,000 67,133 100% 0%

Sir Peter

Westmacott 6,667

- - - -

- - - 40,000 46,667 100% 0%

Total Directors 403,333 - 5,600 47,500 - - - - 481,526 937,959 91% 9%

1. Mr Levy’s base cash salary increased from $220,000 to $300,000 pa on 15 January 2020. In the CY2019 Mr Levy received 100% of his base cash salary as equity based remuneration. In the CY2020 Mr Levy

has agreed to receive 50% of his base cash salary as equity based remuneration. In addition Mr Levy’s performance incentives were issued as equity based incentives in May 2020. Assuming all the vesting conditions attaching to Mr Levy’s equity based incentives are achieved a higher remuneration expense will be recognised in the 2021 financial year due to a higher equity based remuneration expense being recognised during the period.

2. Mr Swan’s base cash salary increased from $240,000 to $300,000 pa on 15 January 2020. In the CY2019 Mr Swan received 20% of his base cash salary as equity based remuneration. In the CY2020 Mr

Swan has agreed to receive 38% of his base cash salary as equity based remuneration. In addition Mr Swan’s performance incentives were issued as equity based incentives in May 2020. Assuming all the vesting conditions attaching to Mr Swan’s equity based incentives are achieved a higher remuneration expense recognised in the 2021 financial year due to a higher equity based remuneration expense being recognised during the period. 3. Mr John Sims resigned from his position as Non-Executive Chairman 24 September 2019 and Mr Peter Pawlowitsch was appointed Non-Executive Chairman on the same date.

4 Sir Peter Westmacott resigned from his position as Non-Executive Director 24 September 2019.

5 Mr Stepka was appointed as Non-Executive Director 1 May 2020.



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D. Relationship between remuneration and company performance The Directors assess performance of the Group with regard to the achievement of both operational and financial targets with a current focus on subscriber numbers, recurring (contracted) sales revenues and share price. Directors and employees are issued options and/or performance rights, to encourage the alignment of personal and shareholder interests. Options issued to Directors and employees may be subject to market-based price hurdles and other vesting conditions that encourage the achievement of strategic targets and/or ongoing commitment to the Company. The exercise price of options is set at a level that encourages the Directors to focus on share price appreciation. The Board believes this policy will be effective in increasing shareholder wealth. Key management personnel are also entitled to participate in the employee share and option arrangements. Performance rights vest on the achievement of market based price hurdlers and/or operational milestones, providing those Directors and executives holding performance rights an incentive to meet the operational and financial milestones prior to the expiry date of the performance rights. On the resignation of Directors and employees any vested options and performance rights issued as remuneration are generally retained by the relevant party. The Board may exercise discretion in relation to approving incentives such as options and performance rights. The policy is designed to reward key management personnel for performance that results in long-term growth in shareholder value, to also encourage employee commitment to the Company and to align staff and shareholders interests. The following table shows Group‟s operating revenue, profits/(losses) and dividends for the last five financial years, as well as the Company‟s share prices at the end of the respective financial years. The Group has continued to grow its operating revenue over the last financial year. As outlined in the operating and financial review growth in revenue in particular contracted recurring revenues from the Company‟s education business is a key focus of the Group. The Board has been issued equity based incentives during the financial year as a reward for the operational performance of the Group but also as an incentive with performance based vesting conditions linked to the Group‟s key strategic objectives being recurring revenue growth and share price appreciation, therefore aligning the interests of Directors with shareholders.

2020 $

2019 $

2018 $

2017 $

2016

$

Operating revenue 5,090,173 4,184,323 2,329,780 1,589,202 5,532

Net profit/(loss) (17,617,120) (14,401,137) (18,206,211) (8,834,735) (2,815,607)

Share price at year-end 0.195 0.150 0.475 0.33 0.20

Dividends paid 0.00 0.00 0.00 0.00 0.00



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E. Key management personnel’s equity holding a) Number of Options held by Key Management Personnel The number of the options of the Company held, directly, indirectly or beneficially, by each Director and key management personnel, including their personally-related entities for the year ended 30 June 2020 are as follows:

Directors and

Executives

Held at

1 July 2019

Options

exercised

Options

expired

Other

changes

Held at

30 June 2020

Vested and

exercisable

at 30 June 2020

Mr Tim Levy 181,351 - - - 181,351 120,900

Mr Crispin Swan 197,838 - - - 197,838 131,892

Mr John Sims - - - - - -

Mr Peter

Pawlowitsch1

- - - 3,000,000 3,000,000 1,000,000

Mr Phil Warren2 1,500,000 - - (1,500,000) - -

Sir Peter Westmacott 75,000 - - - 75,000 75,000

Mr Matthew Stepka - - - - - -

Total 1,954,189 - - 1,500,000 3,454,189 1,327,792

1. 3,000,000 options ($0.21, 8 Nov 2022) were issued to Peter Pawlowitsch on 8 Nov 2019 of which

1,000,000 were vested as at 30 June 2020.

2. 1,500,000 options ($0.25, 29 Aug 2019) held by Phil Warren expired unexercised on 29 August 2019.

Subsequent to year end on 7 July 2020 Phil Warren was issued 1,000,000 options ($0.21, 7 July 2023).

These were approved at shareholder meeting on 30 June 2020.

During the period 3,000,000 options ($0.21, 3 years) were granted to Non-Executive Chairman, Peter Pawlowitsch pursuant to the terms of his appointment for services to be provided. Shareholder approval was obtained 4 November 2019 and the options were issued 8 November 2019. These options are subject to various vesting conditions as outlined below:

Tranche Vesting Condition Number Value Per

Option ($)

Total Value

($)

Total Share-Based Payment Expense

for the year ($)

1 None 1,000,000 0.0923 92,260 92,260

2 The 30 day VWAP of the Company’s Shares being greater than $0.25

500,000 0.0917 45,855 9,832


500,000 0.0882 44,090 9,454


500,000 0.0830 41,480 8,894


500,000 0.0754 37,700 8,083

Total 3,000,000 261,385 128,523



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The fair value of these options have been determined using a Monte Carlo simulation model and the inputs are outlined below:

Tranche 1 Tranche 2 Tranche 3 Tranche 4 Tranche 5

Underlying share price $0.18 $0.18 $0.18 $0.18 $0.18

Exercise price $0.21 $0.21 $0.21 $0.21 $0.21

Target price N/A $0.25 $0.25 $0.25 $0.25

Exercise Multiple 2.5 2.5 2.5 2.5 2.5

Expiry date (years) 3 3 3 3 3

Expected Volatility 90% 90% 90% 90% 90%

Risk free rate 0.83% 0.83% 0.83% 0.83% 0.83%

Value per option $0.0923 $0.0917 $0.0882 $0.0830 $0.0754

During the year 1,000,000 options ($0.21, 3 years) were granted to non-executive Director Phil Warren. Shareholder approval was obtained 30 June 2020, options were issued 7 July 2020. These options are subject to various vesting conditions, the details of which have been outlined below:

Tranche Vesting Condition Number Value Per

Option ($)

Total Value ($)

Total Share-Based Payment Expense

for the year ($)

1 None 500,000 0.1154 57,705 57,705


500,000 0.1090 54,500 -

Total 1,000,000 112,205 57,705 Tranche 1 Options have been valued using a Monte Carlo simulation and Tranche 2 Options have been valued using the Black Scholes option pricing model valuation methodology. The key inputs have been outlined below.

Tranche 1 Tranche 2

Grant date 30/06/2020 30/06/2020

Underlying share price $0.195 $0.195

Exercise price $0.210 $0.210

Expiry date (years) 3 3

Expected Volatility 98% 93%

Risk free rate 0.26% 0.26%

Value per option $0.1154 $0.1090

b) Number of Shares held by Key Management Personnel The number of ordinary shares of the Company held, directly, indirectly or beneficially, by each Director and key management personnel, including their personally-related entities for the year ended 30 June 2020 is as follows:



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Directors and

Executives

Held at

1 July 2019

Received as

remuneration

Shares issued

for cash

subscription

Other

changes

Held at

30 June 2020

Mr Tim Levy1 10,939,729 - 1 10,939,730

Mr Crispin Swan1 4,196,574 - 1 4,196,575

Mr John Sims 322,222 - - - 322,222

Mr Peter

Pawlowitsch2

- 559,991 3,571,428 - 4,131,419

Mr Phil Warren 293,088 - - - 293,088

Sir Peter

Westmacott 283,052 - - - 283,052

Mr Matthew Stepka - - - - -

Total 16,034,665 559,991 3,571,428 2 20,166,086

1. Class C Performance Shares that lapsed during the year converted into 1 fully paid ordinary share for each holder.

2. 559,991 shares were issued to Peter Pawlowitsch in lieu of cash remuneration, of $80,000. Peter Pawlowitsch

participated in the Oct/Nov 2019 shares placement being issued 3,571,428 shares at $0.14 each ($500,000 investment).

He also participated in the May/June 2020 placement with 4,166,666 shares being issued at $0.12 each ($500,000

investment) on 7 July 2020.

c) Number of Employee Options issued during the year under the Employee Share Option Plan During the year, 3,000,000 options were issued to Mr Peter Pawlowitsch under ESOP with exercise price of $0.21

and expiry date of 8 November 2022. Refer to Section E, part a, above for details on valuation and inputs.

d) Performance Share Holdings of Key Management Personnel The number of Performance Shares of the Company held, directly, indirectly or beneficially, by each Director and key management personnel, including their personally-related entities for the year ended 30 June 2020 are as follows:

Held at 1 July 2019 Held at 30 June 2020

Directors and

Executives

Class B

Performance

Shares

Class C

Performance

Shares

Class B

Performance

Shares1

Class C

Performance

Shares2

Mr Tim Levy 3,878,610 3,878,610 - -

Mr Crispin Swan 2,205,383 2,205,383 - -

Mr John Sims - - - -

Mr Phil Warren - - - -

Sir Peter Westmacott - - - -

Total 6,083,993 6,083,993 - -

1. Class B Performance Shares lapsed during the year following vesting conditions not being achieved.

2. Class C Performance Shares were cancelled on 2 June 2020.

The Performance Shares convert to ordinary fully paid shares on a one for one basis following the achievement of the performance milestones before the expiry date as outlined below:



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● Class B Performance Shares convert on achievement of $10,000,000 revenue by the Group over a 12 month rolling period of which 30% is subscription income (as confirmed by the Group‟s auditor) by 29 August 2019.

● Class C Performance Shares convert on achievement of $20,000,000 revenue by the Group over a 12 month rolling period of which 30% is subscription income (as confirmed by the Group‟s auditor) by 29 August 2020.

The Class B Performance Shares lapsed during the year following vesting conditions not being achieved and the Class C Performance Shares were cancelled on 2 June 2020. The Performance Shares held by the Directors outlined above were not granted as part of their remuneration but issued to the Directors in consideration for cancellation of ordinary shares they held in the Company prior to the Company‟s listing on ASX. e) Performance Rights Holdings of Key Management Personnel The number of Performance Rights of the Company held, directly, indirectly or beneficially, by each Director and key management personnel, including their personally-related entities for the year ended 30 June 2020 are as follows:

Directors and Executives Performance Rights

held at

1 July 2019

Received as

remuneration

Other changes Performance Rights

held at

30 June 2020

Mr Tim Levy1 977,778 3,621,429 - 4,599,207

Mr Crispin Swan2 1,213,333 2,364,286 (333,330) 3,244,289

Mr John Sims - - - -

Mr Peter Pawlowitsch - - - -

Mr Phil Warren - - - -

Sir Peter Westmacott - - - -

Mr Matthew Stepka3 - - - -

Total 2,191,111

5,985,715 (333,330) 7,843,496

1. Tim Levy was issued 1,071,429 Remuneration Performance Rights, 300,000 Employee Performance Rights, 1,250,000

Executive Performance Rights and 1,000,000 SP Performance Rights (comprising 100,000 Class A TL SP Performance

Rights, 200,000 Class B TL SP Performance Rights, 300,000 Class C TL SP Performance Rights and 400,000 Class D

TL SP Performance Rights) on 5 May 2020.

2. Crispin Swan was issued 814,286 Remuneration Performance Rights, 300,000 Employee Performance Rights and

1,250,000 Executive Performance Rights on 5 May 2020. 333,330 Class Performance Rights issued previously to

Crispin lapsed during the year following vesting conditions not being achieved.

3. 500,000 Remuneration Performance Rights and 5,000,000 MS SP Performance Rights (comprising 1,000,000 Class A

MS SP Performance Rights, 1,000,000 Class B MS SP Performance Rights, 1,000,000 Class C MS SP Performance

Rights, 1,000,000 Class D MS SP Performance Rights and 1,000,000 Class E MS SP Performance Rights) were issued

to Matthew Stepka on 7 July 2020. The issue of these securities was approved at the shareholder meeting on 30 June

2020.



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The Performance Rights are subject to the following performance based vesting milestones:

Performance Rights Vesting Condition Milestone Date

Number of Performance Rights Vesting

Remuneration Performance Rights

Continued employment with the Company in existing role from issue date until the Milestone Date

6 months from issue

date

100% Remuneration Performance Rights held

Executive Performance Rights

The achievement of ARR1 of $14.4m by the Milestone Date

30 June 2021

If the ARR is $20m or more, 100% of the Executive Performance Rights held;

OR

If the ARR is less than $20m, the number of Executive Performance Rights vesting is determined based on this formula:

[ARR at the Milestone Date1/ $16m] x [(Number Executive Performance Rights held) x (100/125)]

Class A Employee Performance Rights


1 year from issue date.

100% of the Class A Employee Performance Rights held

Class B Employee Performance Rights



100% of the Class B Employee Performance Rights held

Class C Employee Performance Rights



100% of the Class C Employee Performance held

Class A TL SP Performance Rights

The 30 day VWAP of the Company’s Shares being greater than $0.25 prior to the Milestone Date

3 years from issue date

100% of the Class A TL SP Performance Rights held

Class B TL SP Performance Rights



100% of the Class B TL SP Performance Rights held

Class C TL SP Performance Rights



100% of the Class C TL SP Performance Rights held

Class D TL SP Performance Rights



100% Class D Performance TL SP Rights held

Class A MS SP Performance Rights

The 30 day VWAP of the Company’s Shares being greater $0.12 prior to the Milestone Date


100% Class A Performance MS SP Rights held

Class B MS SP Performance Rights



100% Class B Performance MS SP Rights held



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Performance Rights Vesting Condition Milestone Date

Number of Performance Rights Vesting

Class C MS SP Performance Rights



100% Class C Performance MS SP Rights held

Class D MS SP Performance Rights



100% Class D Performance MS SP Rights held

Class E MS SP Performance Rights

The 30 day VWAP of the Company’s Shares being greater $0.60 prior to the Milestone Date


100% Class E Performance MS SP Rights held

1: ARR means the annual recurring revenue of the Company at a particular date which equals 12 X the consolidated revenue reported by the Company in the next calendar month, on an accruals basis, inclusive of contracted and uncontracted service revenue and exclusive of one off revenue such as installation fees, hardware and any R&D or other grant income.

During the year, the Company issued a number of Performance Rights to executives and Directors as an incentive and as remuneration for services.

Performance Rights Number Expense for Period

TL SP Performance Rights (i) 1,000,000 $ 12,082

MS SP Performance Rights (i) 5,000,000 $ 352,000

Remuneration Performance Rights - Tim Levy, Crispin Swan (ii) 1,885,715 $ 83,217

Remuneration Performance Rights - Matthew Stepka (ii) 500,000 $ 9,863

Employee Performance Rights – Directors (iii) 600,000 $ 7,574

Executive Performance Rights – Directors (iv) 2,500,000 $ 43,898

$ 508,634

(i) During the year the Company had agreed to issue 1,000,000 TL SP Performance Rights to Tim Levy and

5,000,000 MS SP Performance Rights to Matthew Stepka. The issue of the SP Performance Rights was subject to shareholder approval which was obtained 1 May 2020 and 30 June 2020 for Messers Levy and Stepka respectively. The TL SP Performance Rights have been valued using a Monte Carlo simulation methodology to account for the market based vesting conditions. The total value of the TL SP Performance Rights issued to Mr Levy when granted was $89,000 with this share based payment expense recognized over the expected vesting period of the TL SP Performance Rights. The MS SP Performance Rights have been valued using a Monte Carlo simulation methodology to account for the market based vesting conditions. The total value of the MS SP Performance Rights issued to Mr Stepka when granted $545,000 with this share based payment expense recognized over the expected vesting period of the MS SP Performance Rights. The inputs utilised and fair value determined for TL SP Performance Rights and MS SP Performance Rights within the Monte Carlo simulation performed are as outlined below:



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TL SP Performance Rights Class A Class B Class C Class D Total

Unvested Unvested Unvested Unvested

Vesting Date 1-May-23 1-May-23 1-May-23 1-May-23

Number of PR issued 100,000 200,000 300,000 400,000 1,000,000

VWAP Hurdle $0.25 $0.35 $0.45 $0.60

Volatility 99.35% 99.35% 99.35% 99.35%

Risk Free Rate 0.32% 0.32% 0.32% 0.32%

Total Value of PR $11,000 $20,000 $27,300 $31,600 $89,900

Total Expense for Period $2,602 $4,730 $2,036 $2,714 $12,082

Management have assessed the probability of achieving the vesting condition, as at reporting date. If it was assessed that the hurdle was likely to be met prior to the expiry date the share based payment expense has been adjusted to reflect a shorter vesting period.

Management's assessment was based on the fact that the Company's share price was $0.195, as at 30 June 2020 and therefore any Tranches with a VWAP hurdle of less than $0.195 have been met and fully expensed. For those tranches that management have assessed, as at reporting date, as more likely to be met earlier than the stated vesting date, they have been expensed over a shortened vesting period.

(ii) The Remuneration Performance Rights granted to Messrs Levy, Swan and Stepka have been valued based on the fair value of the services provided (remuneration foregone) being $324,000, with this share based payment expense recognised over the vesting period of the Remuneration Performance Rights. An expense of $83,217 for Messrs Levy and Swan and $9,863 for Mr Stepka, respectively, has been recognised in the current period.

(iii) The Employee Performance Rights have been valued at $0.13 based on the share price as at the grant date. The Employee Performance Rights convert into ordinary shares on a one for one basis subject to achievement of the vesting conditions. The total value of the Employee Performance Rights issued to Messers Levy and Swan when granted was $78,000 with this share based payment expense recognized over the vesting period of the Employee Performance Rights. An expense of $7,574 has been recognised in the current period.

MS SP Performance Rights

Class A Class B Class C Class D Class E Total

Unvested Unvested Unvested Unvested Unvested

Vesting Date 30/06/2021 30/06/2021 30/06/2021 30/06/2022 30/06/2022

Number of PR issued 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 5,000,000

VWAP Hurdle $0.12 $0.18 $0.24 $0.36 $0.60

Volatility 92.66% 92.66% 92.66% 92.66% 92.66%

Risk Free Rate 0.26% 0.26% 0.26% 0.26% 0.26%

Total Value of PR $194,000 $158,000 $101,000 $64,000 $28,000 $545,000

Total Expense for Period $194,000 $158,000 - - - $352,000



32

(iv) The Executive Performance Rights have been valued at $0.13 based on the share price as at the grant date. The Executive Performance Rights convert into ordinary shares on a one for one basis subject to achievement of the vesting conditions. The total value of the Executive Performance Rights issued to Messers Levy and Swan when granted was $325,000 with this share based payment expense recognized over the vesting period of the Executive Performance Rights. When assessing the value of the Executive Performance Rights it has been assumed that the vesting condition will be achieved. In the event the vesting condition is not achieved this share based payment expense will be reversed. An expense of $43,898 has been recognised in the current period.

c) Key Management Personnel Loans No loans were provided to, made, guaranteed or secured directly or indirectly to any KMP or their related entities during the financial year. d) Other Transactions with Key Management Personnel Transactions with other related parties are made on normal commercial terms and conditions and at market rates. Outstanding balances are unsecured and are repayable in cash. Grange Consulting

Mr Phil Warren, a Director of the Company, is also a director of Grange Consulting and an entity related to him is a shareholder of Grange Consulting. Grange Consulting is engaged to provide financial management and company secretarial services to the Group. Pursuant to this engagement during the year ended 30 June 2020 Grange Consulting was entitled to receive $7,500 (plus GST) per month for these services. This fee was increased to $10,000 per month (plus GST) from 1 July 2020. An administration fee of 5% is also payable on each invoice. This engagement can be terminated by either party giving 60 days‟ notice in writing. A summary of the fees paid to Grange Consulting for the year ended 30 June 2020 and 30 June 2019 is as follows:

30 June 2020 30 June 2019

Company secretarial and financial management services $94,839 $94,500

Total $94,839 $94,500

No amounts were payable to Grange Consulting or Grange Capital Partners as at 30 June 2020 (2019: $25,987 incl. GST).

*********** END OF AUDITED REMUNERATION REPORT *********** Signed in accordance with a resolution of the Directors.

Mr Tim Levy Managing Director 30 September 2020

Pitcher Partners BA&A Pty Ltd

An independent Western Australian Company ABN 76 601 361 095.Level 11, 12-14 The Esplanade, Perth WA 6000Registered Audit Company Number 467435.Liability limited by a scheme under Professional Standards Legislation.

Adelaide Brisbane Melbourne Newcastle Perth Sydney

Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International

Limited, the members of which are separate and independent legal entities.

AUDITOR’S INDEPENDENCE DECLARATION TO THE DIRECTORS OF FAMILY ZONE CYBER SAFETY LIMITED

In relation to the independent audit for the year ended 30 June 2020, to the best of my knowledge and belief there have been:

(i) No contraventions of the auditor independence requirements of the Corporations Act 2001; and

(ii) No contraventions of APES 110 Code of Ethics for Professional Accountants (including Independence Standards).

This declaration is in respect of Family Zone Cyber Safety Limited and the entities it controlled during the year

PITCHER PARTNERS BA&A PTY LTD PAUL MULLIGAN Executive Director Perth, 30 September 2020

33

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 30 June 2020

34


Note 2020

$

2019

$

Revenue 4 5,090,173 4,184,323

Cost of sales (2,248,493) (2,033,080)

Gross profit 2,841,680 2,151,243

Other income 4 3,375,692 3,847,124

Advertising costs 5(a) (671,184) (1,005,088)

Administration costs (1,083,398) (1,866,391)

IT costs (3,659,943) (1,112,338)

Share based payments 20 (2,915,880) (1,933,070)

Employee and director costs 5(c) (10,048,900) (9,927,363)

Depreciation and amortisation 11, 12, 13 (4,164,248) (4,498,680)

Contingent consideration revaluation gain/(loss) (87,582) 1,168,470

Other costs (988,953) (1,124,773)

Operating loss (17,402,716) (14,300,866)

Finance costs (214,404) (100,271)

Loss before income tax (17,617,120) (14,401,137)

Income tax benefit/(expense) - -

Loss after tax for the period attributable to the members of Family Zone Cyber Safety Limited

(17,617,120) (14,401,137)

Other comprehensive income

Items that will be reclassified subsequently to profit or loss when specific conditions are met:

Exchange differences on translating foreign operations, net of tax

(9,595) (14,973)

Total comprehensive (loss) for the period attributable to the members of Family Zone Cyber Safety Limited

(17,626,715) (14,416,110)

Basic and diluted loss per share (cents per share) for the year attributed to the members of Family Zone Cyber Safety Limited

7 (7.48) (9.07)

The above Consolidated Statement of Profit or Loss and Other Comprehensive Income is to be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2020

35


The above Consolidated Statement of Financial Position is to be read in conjunction with the accompanying notes.

Note 2020

$

2019

$

ASSETS

Current Assets

Cash and cash equivalents 8 5,807,193 5,116,523

Trade and other receivables 9 4,739,118 3,228,710

Prepayments 188,611 805,604

Inventory 10 249,993 157,152

Total Current Assets 10,984,915 9,307,989

Non-Current Assets

Intangibles 11 1,251,177 4,826,403

Trade and other receivables 9 53,156 80,112

Plant and equipment 12 1,540,565 682,757

Right to use assets 13 365,740 -

Total Non-current Assets 3,210,638 5,589,272

TOTAL ASSETS 14,195,553 14,897,261

LIABILITIES

Current Liabilities

Trade and other payables 14 3,121,307 2,220,559

Contract liabilities 4 2,314,320 1,903,181

Provisions 15 655,028 491,728

Contingent consideration - 629,440

Borrowings 16 1,272,510 1,469,535

Lease liability 13 225,642 -

Total Current Liabilities 7,588,807 6,714,443

Non-current Liabilities

Trade and other payables 14 - 12,675

Contract liabilities 4 1,917,795 188,079

Contingent consideration 22,117 47,595

Provisions 15 103,563 -

Lease Liability 13 156,625 -

Total Non-current Liabilities 2,200,100 248,349

TOTAL LIABILITIES 9,788,907 6,962,792

NET ASSETS 4,406,646 7,934,469

EQUITY

Issued capital 17 56,673,575 45,567,979

Reserves 18 10,435,288 7,451,587

Accumulated losses 19 (62,702,217) (45,085,097)

TOTAL EQUITY 4,406,646 7,934,469

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2020

36


Issued Capital

Share-based Payment Reserve

Accumulated Losses

Foreign Currency

Translation Reserve

Total

$ $ $ $ $

Balance at 1 July 2018 30,873,178 6,842,123 (30,683,960) 11,663 7,043,004

Loss for the year - - (14,401,137) - (14,401,137)

Total other comprehensive income

- - - (14,973) (14,973)

Total comprehensive loss for the year

- - (14,401,137) (14,973) (14,416,110)

Transaction with owners, directly recorded in equity:

Issue of Ordinary Shares, net of transaction costs

14,694,801 - - - 14,694,801

Issue of Options, Performance Rights & Performance Shares

- 612,774 - - 612,774

Total transactions with o

family zone cyber safety limited · 2020. 10. 5. · family zone cyber safety limited annual report...

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